This Morning: Nokia Surges, Apple and RIM Prepare, EMC Scrutinized

By Tiernan Ray

Here are some things going on this morning in your world of tech:

Shares of Nokia (NOK) are up 74 cents, or almost 20%, at $4.49, having increased gains steadily all morning after the company this morning pre-announced results that were better than the company had expected, based on both its “Devices & Services” division having better handset sales, including the “Lumia” portfolio, based on Microsoft's (MSFT) Windows Phone, and also better-than-expected performance in terms of cost management and margin at its Nokia Siemens Networks division. The company now expects €3.9 billion in Devices revenue, including sales of 6.6 million smartphones, of which 4.4 million Lumias, plus 9.3 million of its simpler “Asha” line of smartphones.

The Lumia figure appears to have been below some analysts' estimates, but above other analysts' estimates, based on their having been a wide spread. Nokia said it was supply-constrained on the Lumias. Jennifer Fritzsche with Wells Fargo is morning reiterates a Market Perform rating on the stock saying that she had been expecting 6.5 million Lumias. Still, she writes, “this represents the first quarter since Elop took the helm as CEO where the company has finally shown some tangible execution on its restructuring plans.”

Shares of Apple (AAPL) are up $2.06, almost half a percent, at $519.73 this morning

Piper Jaffray's Gene Munster cut his price target on the stock to $875 from $900, writing that he thinks a forthcoming lower-priced version of the iPhone for emerging markets, about which he speculated yesterday, will carry lower gross margin, which will bring down Apple's gross margin in 2014 to 40.6% from a prior 41.5% estimate.

And Reuters's Melanie Lee this morning reports that Apple CEO Tim Cook was in China meeting with China Mobile's (CHL) chairman, Xi Guohua, during which time they “discussed matters of cooperation,” according to a spokesperson that Lee quotes.

Brian White of Topeka Capital Markets this morning opined that the tone of that meeting, based on the press reports, sounds similar to the tone between Apple and China Telecom (CHA) just before the two finally inked a deal for Telecom to carry the iPhone. So he expects Apple to get a deal this year.

Shares of Research in Motion (RIMM) are up $.25, or 2%, at $11.74 following an article by Reuters's Sinead Carew stating that Verizon Communications (VZ) AT&T (T), and T-Mobile USA all plan to carry the new BlackBerry models the company will release when it puts out its BB10 operating system, which will make its debut on January 30th, citing interviews with the carriers this week at the Consumer Electronics Show.

Shares of EMC (EMC) are down 22 cents, or 1%, at $23.81 as analysts continue to debate the outlook for fourth quarter ended last month. Morgan Stanley's Katy Huberty cut her rating on the shares to Equal Weight from Overweight, writing that “While C4Q turned out to be challenging for hardware in general, our channel checks suggest storage experienced the largest negative change on the margin.”

However, BlueFin Research Partners's Rick Gately writes this morning that based on his research “While many resellers and distributors acknowledge that many customer deals came ‘down to the wire’ at the end of the year and some slipped into January, they mostly believe that EMC was able to book enough December business in order to achieve consensus estimates.”

Hence, “With revised guidance that translates to $5.91B – $6.06B, most partners believe the Company will land within management’s range for revenues, benefitting from the downward revision early last quarter,” writes Gately. EMC is expected to report Q4 results on January 29th.

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JANUARY 10, 2013 11:17 A.M.

SloMoe... wrote:

MKM Partners’s Mike Genovese, who has a Sell rating on Nokia shares, this morning insists that investors are “overanalyzing the Apple win as a loss for Android and a win for Nokia and RIMM,” as he put it to me in an email accompanying his formal client notes.

“People want iPhones and Androids and don’t want Windows and BB phones. I don’t see this changing.

In fact, MKM’s derivatives strategist Jim Strugger this morning recommended to clients a strategy of “setting up short directional exposure in NOK via October 3.5/2.5 or 3/2.5 put spreads,” given that “MKM Partners Communications Equipment Analyst Michael Genovese thinks the new phones will be poorly received and that NOK will subsequently report weak 3Q12 earnings that include significant cash burn.”

JANUARY 10, 2013 11:20 A.M.

Ira in LA wrote:

I think Gene's a bright guy, but if a lower-priced iPhone brings incremental business to emerging markets (does that mean poor countries?), how it matter if it's a lower margin? If it's additional profit over what would otherwise be, how does that lower the bottom line and thus the target, for the company?
(Unless the concern is cannibalization in other markets)
Je ne comprends pas :((

JANUARY 10, 2013 11:25 A.M.

Robert Miller wrote:

Can Apple make a deal with China Mobile? "Tone" of meeting sounds fine??

Maybe but they they will have to come up with a phone that is as good as the Nokia 920T and the Nokia 620 at half the price to be competitive. I don't think they can or will.

Will Apple be willing to cut their margins? Will they be willing to forgo participating in China Mobil's cash flow? If so will it cost them big time in other markets? China Mobile is the first Telcom to be able and willing so far to stare Apple down.

China Mobile is giving a full subsidy to the Nokia 920 possibly with Microsoft's help. Can or will Apple chip in there as well? If not they may cede a big chunk of the China market to Nokia.

Rumor has it that Apple's iPhone6 will look more like Nokia's 920 (colors/plastic?). Rumor has it that Nokia's next flagship 920 will look more like current iPhone (aluminum). Who wins in such styling combat? I suggest Nokia.

JANUARY 10, 2013 11:26 A.M.

Ed wrote:

Apple and Cook are simply Pathetic. They
are now hated, that's right, hated by wall street
and investors. Never seen a company get
crucified daily from all points like Apple. Cook
is ruining Apple and is late to the dance on
all fronts. Perhaps if he spent time making and
shipping Great products and less in the
court room, Apple would be much higher
in stock price and less hated. Just think, Apple
was the number one company in the
world in September and now it's the most
hated and it's value has dropped 27%. Apple
can't do anything right anymore and when
Cook and Apple miss earnings once Again
in 2 weeks, the search for a new CEO will
be quick. Even if they make earnings, who cares
the stock goes up 20 bucks to 530 cause the
damage is already done. Either result, Cook
cannot win and he will be history.

JANUARY 10, 2013 11:27 A.M.

freddysrevng wrote:

How "WRONG" has Geno Munster been about AAPL since his "Apple $1,000 per share and RIMM BK" call? He is really good at what he does for a living, isn't he.? iTardation just doesn't have the same elan that it used to - does it?

In other news, Tirernan rightly reports that among the 150 carriers around the world that are testing BB 10 - the "Majors" in the good ol USA are on board and ready to support the 6 NEW BB 10 phones to be launched this year. Listening to the CES interviews of these CEOs is quite a long way from the miserable level of support they have given RIMM - and rightly so - over the past couple of years.

Looks like the "Launch BB 10 phones in Q1 to let the NOISE die down" will work out brilliantly for RIMM.

ENTER BB 10 .....

JANUARY 10, 2013 11:33 A.M.

freddysrevng wrote:

@ Ed - you could not be more "correct". Apple has gone from one of the most innovative companies in the world to a manufacturer of "litigation and cannabilizing products".

But, hey, they still have the CNBC suckers and a good chunk of the "Distortion Field Media" on board - they were giddy this morning when AAPL was up $12 in the premarket - how is that working out now?

ENTER BB 10 .....

JANUARY 10, 2013 11:33 A.M.

Anonymous wrote:

Nokia, which has come down more than 90% from its highest, is really worth consideration.

JANUARY 10, 2013 11:35 A.M.

Anonymous wrote:

Nokia is a very good candidate for a big short squeeze.

Because the stock has been over sold.

Nokia is the most short sold stock in both Helsinki and New York!

NOK short interest as of December 2012:

NYSE

281 million shares

Helsinki

11.38% (with investors over 0.5%, below 0.5% not listed because of EU rules).

Nokia´s total share number (approximately 3.75 billion shares) covers both New York and Helsinki.

That makes the sort interest in NOK around 20%!

JANUARY 10, 2013 11:37 A.M.

Daniel D wrote:

According to this article Nokia now trades under the ticker AAPL. Maybe some investors bought Nokia stock thinking that they were buying into the worlds' most valuable company at $4 per share.

JANUARY 10, 2013 11:38 A.M.

Anonymous wrote:

Nokia did announce a couple of months ago (when asked why it bought Norway´s Smarterphone but has not used the OS) that Nokia bought Smarterphone because of the company´s expertise, in order to develop Nokia´s feature phones which are going to be kind of half smartphones right now, e.g. the newest Asha 205 and Asha 206, in which there are features like Facebook, Twitter etc and internet access to thousands of Nokia´s most popular apps.

Either Nokia has integrated Smarterphone into S40, we don´t know, but the fact is Nokia´s feature phones have become really smarter!

Apart from the features I mentioned above in the new Asha phones,

Nokia has already brought an app called Nearby (which is almost the same as Lumia´s City Lens) into Asha phone line!

In addition to all these, Nokia has 40 most popular games of the world in these Asha phones for free. And Asha 205, 206 is only $60 without any contract at all. And Nokia´s Asha phones are profitable, that is one really important thing to keep in mind, because almost 2/3 of the world´s population is still using a featurephone!

As Nokia has said, with these Asha phones Nokia is targeting the next billion people to reach internet. There is still a huge opportunity out there which even Android can not target (because cheapest android right now is above $100 and Asha is only $60), not to mention iOS!

Asha phones have been profitable.

JANUARY 10, 2013 11:39 A.M.

Anonymous wrote:

Nokia has a brighter future than RIM

1) BB10 is a bit late!

2) RIM has been strong in enterprise business, but now RIM will face

more than tough competition. For example, In China China Mobile sells the Nokia Lumia 920T for 4599 yuan with free wireless charging pad or other accessories, which means the phone costs only 4000 yuan. The phone is very much cheaper than iPhone 5 or Galaxy Note 2.

In addition, the Lumia 920T has premium malware virus protection hardware built in.

Therefore, will RIM´s highest end BB10 phone able to compete the price with this Lumia 920T? I really doubt that. And with a 2-year contract, China Mobile offers the Lumia 920T with only 1 yuan!

3) RIM´s loyal fans will still support BB10 phones, but will that be enough?

4) Beside Apple and Samsung, RIM will have to compete also with Nokia.

Now, Nokia with WP8 is in quite a big step ahead of RIM with BB10.

Nokia has low price point Asha phones and also high-end Lumia phones,

so can RIM do the same?

5) RIM will still need to use a lot of money in R&D and marketing in the future, while Nokia

is saving money in R&D and marketing, because MS shares the expenses.

JANUARY 10, 2013 11:41 A.M.

Anonymous wrote:

Nokia´s Asha phones are competing with low-price androids. Asha phones have many smartphone features and thousands of Nokia´s most popular apps right now and also Facebook and Twitter etc, and even 40 most popular games in the world for free in these phones. Asha phones are only about $60 without any contract, while cheapest android is still about $100.

Nokia is also saving money in R&D, because it has teamed up with Microsoft.

Nokia is actually a BUY and hold for 2013.

Reasons:

1. China Mobile deal

2. Nokia is now getting royalty payment also from RIM

3. Lumia 920 is heading to more markets

4. Budget WP8 phone Lumia 620 is hitting the markets this month

5. Nokia is likely launching a tablet. I don´t expect much, but even some Nokia´s loyal fans around the world will buy some Nokia´s tablets, that is a good gain for Nokia.

6. According to CEO Stephen Elop, Nokia is planning a lot of interesting things with Verizon!

JANUARY 10, 2013 11:43 A.M.

Anonymous wrote:

When now, both China Mobile and China Unicom are subsidizing the Lumia 920 heavily, the 2-year or 3-year contract is starting from

0 or 1 yuan, and considering only less than 1/5 of Chinese people are using highest-end smartphones, now even middle class Chinese people have a chance to use a highest-end smartphone because of China Mobile´s and China Unicom´s Lumia 920 deals.

This will result into a huge number of 2-year or 3-year contract users for Nokia in China! Besides, 3G penetration in China is still very low, there is a huge opportunity there.

Additionally, among the highest end phones, Nokia Lumia 920 is significantly much cheaper than for example iPhone 5 and Galaxy Note II. Nokia has an advantage in both the price competition and the biggest carriers´ backing in China!

JANUARY 10, 2013 11:44 A.M.

Anonymous wrote:

Chinese people know a Samsung or iPhone is made with only about $200 and sold to them with high price for almost $900. Instead, Nokia uses a lot more than that $200 to make a Lumia 920, and it is sold a lot less expensive than Samsung and Apple phone.

In addition, Chinese people know Nokia is really famous with build quality.

JANUARY 10, 2013 11:45 A.M.

Anonymous wrote:

Business men and women like the Lumia 920T in China, because of Office, good maps and location data City Lens and GPS, and good virus protection firmware built in the phone.

JANUARY 10, 2013 11:46 A.M.

Anonymous wrote:

Nokia used to be over $40, now even with profit Nokia is only over $4. Think about it!

Nokia has spent in R&D alone over $55 billion, now its market cap is only about $17 billion.

NYSE tech stocks are on average about 2X book value, while Nokia is still much much below that!

JANUARY 10, 2013 11:47 A.M.

Ed wrote:

Cook will asked to leave after this earnings
report when Apple will miss all around. The
Board will go after Page, Schmidt, Ellison
or Bezos. It will happen and it will be quick.

JANUARY 10, 2013 11:48 A.M.

Anonymous wrote:

At this price, NOK is extremely undervalued.

Morningstar´s analysis about Nokia:

Estimated price: intellectual properties over 1 euro per share (Motorola´s patent portfolio was worth about $5.5 billion); other business parts (smartphones, featurephones, NSN) at least over 1.50 euro per share.

And NAVTEQ´s price not included (Nokia bought NAVTEQ with 5.7 billion euro). All in all, even in this case, Nokia share price would be at least over 2.50 euro, excluded NAVTEQ! And Nokia´s net cash is now 3.6 billion euros.

In other words, the sum of parts of Nokia and net cash are worth much more than its market cap now, which means NOK share is right now heavily undervalued.

Nokia Is Extremely Cheap

The company has since partially offset these fears with excellent cash management, restructuring aimed at reducing costs, and more recently, its better than expected 3rd quarter results. The company achieved operational profitability (1.1% non-IFRS) with better than expected revenues, triggering a 20% increase in stock price. As the table below shows, these factors have enabled Nokia to maintain a healthy interest coverage ratio and quick ratio (nearly equal to the industry average), dispensing any immediate liquidity concerns.

Company

Industry

Sector

Quick Ratio (MRQ)

1.16

1.62

1.64

Current Ratio (MRQ)

1.28

1.96

3.01

LT Debt to Equity (MRQ)

48.76

22.29

10.61

Total Debt to Equity (MRQ)

66.45

39.67

19.69

Interest Coverage (TTM)

4.9

4.91

164.78

Figure 1: Financial Strength/ Reuters

Valuation

Nokia is currently operating at a loss and the sell side expects the company to become profitable, somewhere in 2014. The stock is very volatile, as can be assessed from the 100% run in the last 6 months. I believe Nokia’s share price will continue to fluctuate with short term catalysts and it’s still pointless to value the stock on 2014 earnings given the uncertainty. Instead, investors should value the company on a worst case scenario. I believe at this point, Nokia’s biggest assets are its impressive patent portfolio, Cash, NSN and Navtaq.

I have used three recent patent sales to get an approximate value per share for Nokia’s current patent portfolio.

$ millions

AOL (AOL) Patent Sale

Vringo (VRNG) Purchase

Nortel Networks

No. of Patents Sold

800

500

6000

Sales Value

1100

22

4500

Price Paid Per Patent

1.4

0.0

0.8

No Nokia Patents

9500

9500

9500

Patent Portfolio Value

13063

418

7125

Shares Outstanding

3830

3830

3830

Per Share ($)

3.4

0.1

1.9

Average Price Per Patent

0.79

Average Patent Portfolio Value

7316

Average Per Share Value ($)

1.91

Figure 2: NOK Source: Google Finance

As the calculations show, the patent value per share of Nokia’s patents comes down to $1.91 per share. According to Nokia’s disclosures, the company ended Q3 with gross cash of $11.5 billion (EUR 8.8 billion). The Q3 results also indicated that Nokia had EUR 288 in currently maturing debt and EUR 1.1 billion in short term borrowing. Deducting other liabilities, we arrive at a net cash position of $4.7 billion (EUR 3.6 billion). This comes down to a per share amount of $1.22, and adding the per share patent value of $1.91, the value of cash and patents together is $3.13.

Bottom Line

Nokia still trades way below its salvage value. The company’s patents and net cash, alone are worth $3.13 per share. This of course does not include Nokia’s Navtaq business and NSN (Nokia Siemens Network). These divisions continue to be profitable, despite problems of Nokia’s smartphone division. In Q3 NSN sales were EUR 3.5 billion and operating profit was EUR 323 million; the operating profit of location and commerce segment was EUR 37 million. The combined value of Navtaq (3x sales for $3 billion) and NSN (0.5x sales for $7 billion) is around $10 billion ($2.6 per share). This gives us an approximate per share value of $5 for NOK. Therefore, Nokia is still trading at a discount to its salvage value and is an excellent value opportunity.

Usually, NYSE tech stocks are at least 2X valuated value. In this case, NOK share price should be at least around $10.

NOK is so cheap, because the stock has been over sold.

Nokia is the most short sold stock in both Helsinki and New York!

NOK short interest:

NYSE November 30

295,118,232 shares

Helsinki December 6

10.7% (with investors over 0.5%, below 0.5% not listed)

Nokia´s total share number (approximately 3.75 billion shares) covers both New York and Helsinki.

That makes the sort interest in NOK around 20%!

Nokia is a good candidate for a big short squeeze!

Important to note:

Usually, NYSE tech stocks are at least 2X valuated value. In this case, NOK share price should be at least around $10.

JANUARY 10, 2013 11:50 A.M.

Anonymous wrote:

Conclusion is, Nokia is to buy and hold it for long term or medium term

Nokia´s current 3.6 billion euros net cash should be enough for Nokia´s transitional period before WP8 phones take off.

Nokia is also getting more cash from convertible bonds and selling its headquarters and other non-core assets.

1. Nokia Siemens Networks is profitable and growing strongly (over 300 million euros profit in 3Q). Nokia and Siemens have decided to make it independent in these few years, therefore Nokia shareholders will have two companies´ shares in their hands, quite a good bonus.

2. Navteq is profitable as well, and it is expanding its business as the world´s leading maps maker, with City Lens and Earthmine´s 3D mapping, Nokia will have a bigger slice of this pie yet.

Right now, Navteq already has big clients such as Yahoo, Facebook, Amazon, Mozila, Oracle and almost countless car companies. Navteq just reported it is building navigators into 4 out of 5 cars (80%), with the new cars with navigator built in.

Super sensitive and bright screen that can be used with gloves or finger nails

Premium GPS that can be used also without internet

Augmented reality City Lens!

Free music with no ads

NFC

Rich sound recording in vids

Fastest screen on a smartphone!

Wireless Purity Pro headphones

Wireless speaker that can charge your phone wirelessly

LTE

Nokia also bought Scalado, the imaging technology firm in Sweden. Therefore, apart from NAVTEQ and NSN, Nokia is no doubt going big with PureView imaging technology. Some authors compare Nokia to Kodak, I think it is almost the opposite.

Kodak was the old era and Nokia is starting the new evolution with smart-phone imaging, when consumers won´t have to carry another gadget (camera), for example during traveling.

6. Considering now Nokia´s Devices & Services have come back to profit,

Nokia´s current 3.6 billion euros net cash should be enough for Nokia´s transitional period before WP8 phones take off.

Nokia is also getting more cash from convertible bonds and selling its headquarters and other non-core assets.

Morningstar´s analysis about Nokia:

Estimated price: intellectual properties over 1 euro per share; other business parts (smartphones, featurephones, NSN) at least over 1.50 euro per share.

And NAVTEQ´s price not included (Nokia bought NAVTEQ with 5.7 billion euro). All in all, even in this case, Nokia share price would be at least over 2.50 euro, excluded NAVTEQ! And Nokia´s net cash is now 3.6 billion euros.

In other words, the sum of parts of Nokia and net cash are worth much more than its market cap now, which means NOK share is right now heavily undervalued.

7. Nokia´s 3.75 billion shares outstanding,

covers both Helsinki and New York.

In other words, the short interest in NOK has been around 20% (Helsinki + New York) on a base of 3.75 billion shares.

This is a significant figure to note, because for example, shares of Apple have been short sold only about 0.5%, Samsung over 2% and other telecom companies about 4% in general.

Therefore, the real short covering of NOK is still to come yet.

8. Apart from Lumia 920 and 820 variants, Nokia has been pushing at the same time the sales of Lumias 510, 610, 710, 800 and 900 with campaigns and discounts.

For example, Lumia 800 has gone back into top ten charts in many countries.

In these two new Asha phones, Nokia has a new innovation called “Slam” with which you can share photos and videos between the phones, and don´t have to even pair them up like NFC. Also Facebook etc and 40 most popular games in the world are in these phones, which make it hard for manufacturers to compete featurephones with Nokia.

Nokia´s WP8 phones will be available in more markets, because they also support Arabic now.

China Mobile (the world´s biggest carrier with about 700 million subscribers) has also confirmed Lumia 920T !

The Independent UK calls the Lumia 920 “probably the most innovative smartphone on the market”

Lumia 920 and Lumia 620 will gain more smartphone market share in 1Q13, because the supply of Lumia 920 is now starting to get better. Many Lumia 920 pre-orderers especially in China are starting to receive their phone.

Lumia 620 is hitting many markets already this month.

JANUARY 10, 2013 11:54 A.M.

Tiernan Ray wrote:

Daniel D: An hilarious error. Thank you for pointing out the mistake, and my apologies.

JANUARY 10, 2013 12:00 P.M.

Vendir wrote:

Nokia beats already discounted forecasts
with toy phones and their stock is up 20%.
Only in America. Apple will get crushed for
only selling $54B in products. Lol

JANUARY 10, 2013 1:08 P.M.

Bill wrote:

Cook needs to go back to Triple A. He can't
handle the majors. This is reserved for big
time players.

JANUARY 10, 2013 1:35 P.M.

technomonster wrote:

@Ray,
Hey, its me again. remember when Nokia was trading below $2? Remember when you were constantly posting 'news articles' about how Nokia was going bankrupt? Seems like soooo long ago huh? Did Goldam Sachs and Morgan Stanley finally give the thumbs up on Nokia? If so, when do you think they will raise their $1 price targets? Thanks in advance.

JANUARY 10, 2013 1:50 P.M.

Ed wrote:

Facebook will now buy Apple.

JANUARY 10, 2013 11:25 P.M.

Anonymous wrote:

Robert Scobie ( the worlds Biggest Rim Basher / Hater who wishes death and everything bad to them ) just tried the NEW BB10 smartphone. He said, " He likes it a lot".

There you have it people. If you are, or were a Rim hater and basher, once you try BB10, you open your eyes, and all of a sudden you become a Rim lover and supporter.

These phones are going to sell like crazy, and a lot of people know it!

JANUARY 11, 2013 12:40 A.M.

One of the Apple Boys wrote:

Hey everyone, it seems like the soup d jour these past months has been mashed apple. Yes, the environment has changed and all these petty competitors are putting pressure on what AAPL has done brilliantly since its first desktop and laptop in the 1980's, its first iMac in the 1990's, its first iPhone in the 2000's, and iPad in the 2010's. Nobody came close for years and years and years. Now nobody is coming close to the Apple energy gathering and storage systems using wind and liquid heat conversion. What?? Apple: wind and liquid heat conversion? The journalist clowns, rag tag analysts and chicken littles will soon know...that even Quinn the Eskimo is jumping for joy: http://www.energymanagertoday.com/apple-patents-wind-energy-storage-088022/

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.